FAQs Article 37 Tax loss relief
Source: https://mof.gov.ae/corporate-tax-faq/
- What are “Tax Losses”?
A loss for CT purposes (“Tax Loss”) would arise when the total deductions a business can claim are greater than the total income that is subject to tax for the relevant Tax Period, resulting in negative taxable income.
- Will the UAE CT regime allow prior year tax losses to reduce taxable income?
Tax losses can, subject to certain conditions, be offset against the taxable income of future periods, up to a maximum of 75% of the taxable income in each of those future periods. Any excess (unused) tax losses can be carried forward and used against taxable income of future Tax Periods indefinitely.
Example
A taxpayer has taxable income of AED 100,000 and carried forward losses of AED 125,000. It can offset (75% x AED 100,000) = AED 75,000 of its losses carried forward in the relevant Tax Period, reducing its taxable income to AED 25,000.
The amount of tax losses available for carry forward to subsequent Tax periods would reduce to AED 50,000 (AED 125,000 – AED 75,000).
- Will a change in ownership of the taxable person restrict the ability to use its tax losses?
Tax losses can be carried forward without limitation provided the same person or persons continue to own at least 50% of the entity with the losses. Where there is a greater than 50% change in ownership, tax losses may still be carried forward provided there is no major change in the nature or conduct of the entity’s business.
- Will a group be able to utilise the tax losses of one group company against the taxable income of another group company?
Tax losses from one UAE group company may be used to offset taxable income of another UAE group company where there is 75% or more common ownership and certain other conditions are met.
No tax loss transfers will be allowed from companies that are exempt or that benefit from the 0% Free Zone CT regime.
